4.1 Demand and Supply at Work in Labor Markets

Labor Markets: Have demand and supply curves similar to goods markets.

Law of Demand: Higher wages reduce quantity of labor demanded; lower wages increase it.

Law of Supply: Higher wages increase quantity supplied; lower wages decrease it.

Equilibrium: In Minneapolis-St. Paul-Bloomington, equilibrium salary for nurses is $70,000 with 34,000 nurses.

• Surplus occurs at $75,000 (supply: 38,000; demand: 33,000).

• Shortage occurs at $60,000 (supply: 27,000; demand: 40,000).

Shifts in Demand: Caused by changes in demand for goods, education, technology, company numbers, and regulations (derived demand).

Shifts in Supply: Influenced by number of workers, required education, and government policies.

Price Floors: Minimum wage is a price floor that can create a surplus of labor if set above equilibrium.